by Jill Fisch for The Harvard Law School Forum, April 27th, 2011.
The paper, The Destructive Ambiguity of Federal Proxy Access, forthcoming in the Emory Law Journal, demonstrates the tension between the federal requirements for the exercise of shareholder nominating rights and the state law principles upon which the SEC purports to ground those rights. The paper unpacks the ambiguities in the SEC’s conception of which shareholders should nominate director candidates. And it highlights the ambiguity resulting from the SEC’s failure to confront, in adopting its rule, the appropriate allocation of power between shareholders and management and the effects of proxy access on that balance.
Under U.S. corporate law, the shareholders elect the board of directors. In most cases, however, those shareholders do not nominate director candidates. Instead, the nominating committee of the board chooses a slate of candidates, and those candidates are submitted to the shareholders for approval. Absent the infrequent phenomenon of an election contest, shareholders do not participate in the nomination process.
The Securities and Exchange Commission (SEC) has struggled for years with the regulation of the shareholders’ role in nominating directors. As early as 1942, the SEC proposed a rule that would have required issuers to include shareholder-nominated candidates in their proxy statements. Ultimately, the SEC abandoned the proposal. In the ensuing almost seventy years, the SEC revisited the issue at least five times but failed to adopt a rule allowing proxy access. (continue reading… )